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How startups expand to other countries

We are hard at work to launch in Germany, after the initial success we had in our home country, Poland. As a startup, we had to choose a strategy of international expansion. Fast or slow? How many countries at once and which ones? Here are some highlights of our thinking.

The reality for a European startup is that it has to expand to other countries at some point, if it really wants to become a large company. Unlike the US, none of the local European markets is sizeable enough to create a really big organisation.

That it not to say that it is impossible to build a respectable and financially satisfying operation in one country, becoming a big fish in a small pool. Poland is known to be a trap in this regard, as it is a relatively large market with around 40 million consumers. Many companies satisfy themselves with local dominance, instead of going abroad like their peers from smaller countries would do.

As for us, we are now starting in Germany, which is a result of series of choices that we had to make.

Marketplaces and SaaS startups scale differently

We connect pharmacies and patients together, therefore we can be generally described as a 'marketplace' kind of startup. Such initiatives are valuable for users only if there is a significant number of partners on both supply and demand side. For example, we would be worthless for patients if there we no pharmacies on the portal, and likewise pharmacies would not see value if there were no patients.

As it can be easily seen, starting a marketplace is an especially tricky and difficult undertaking.

A different category of startups are Software as a Service companies. Value of their product, which could be, for example, an online CRM system, does not generally depend on how many other users are already on board. Convincing first users is therefore much easier.

Before you take pity on how difficult life of a marketplace is, there is another side of the coin to this. If marketplace does manage to get traction, it is becoming very difficult to compete with.

From the point of view of international expansion, being a marketplace usually means that it is not possible to gain users across the globe just by making one global website available, as it would be in case of many SaaS applications.

Most often, it is necessary to devote significant effort to building local relationships in order to start the service in every country, perhaps also customising the product for local tastes, and promoting it among users.

Selecting countries: opportunistic versus opinionated

So, as a marketplace we need to go country by country. How to choose them?

One strategy was demonstrated by another Polish startup, which is also a medical marketplace. I would describe it as an opportunistic strategy.

Rather than spend too much thinking which country is the most attractive, the strategy was to launch placeholder websites in a large number of regions. The sites had only a minimal content, purchased from local data providers.

In some countries those websites, despite bare-bones appearance, attracted significant organic traffic, which provided indication that online competition in the niche is low. Those countries were selected for further investment.

It can certainly be seen as a smart strategy.

We opted for the opposite approach, which is to select the markets which we like because of their size and structure, and focus efforts there, even if it is not initially easy to start.

The first reason for such approach is that we would not like to end up with small, random countries, just because they responded positively to the lowest possible initial effort.

For example, we chose Germany, because it is one of the largest markets in Europe (7-10 times larger than Poland) and individual pharmacies are very strong. Success here, even if difficult, would be a really meaningful achievement.

Secondly, in our case, the fact that it is easy to attract initial online traffic somewhere does not tell us much whether the market would be easy to develop. The biggest difficulty are relations with pharmacies and other entities.

In similar manner we have selected another two countries, where we want to expand to in the future.

How to go about the expansion

If you know which country you want to go to, how do you organise building new business there?

One way, which is attractive if you have a lot of venture money, and necessary if you are trying to do many countries at once, is to outsource the effort, by hiring middle-level managers and sales reps on the ground.

The upside is that it is quite scalable and the local reps are native language speakers.

The downside is that the reps are not empowered to make decisions adjusting your product to local requirements. You assume that same (or very similar) product can be sold everywhere, which is a certain kind of arrogance, and may backfire. In Poland we had many examples of global online brands which got their nose bloodied by ignoring local expectations and established competitors.

Our approach is to select one country to focus our entire attention on, and expend maximum effort to make it work, including creating local brands for each language and as deep product changes as necessary.

We are making a big bet in some sense, by focusing all forces on one direction, but we also keep the effort very lean.

We are involving the founders and the core team in business development, instead of immediately hiring sales reps and country managers. In this way, our potential partners in Germany are talking directly to decision makers, and we can react to their needs in real time - by promising on the fly to modify the product, for example, responding to unexpected question, or shaping creative deals.

In the end, we recommend always taking a fresh look at the particulars of your business and deciding which approach would make most sense. We are not fans of blindly copying the approach someone else had used, even if it seemed successful, because their circumstances and constraints might had been different to the ones you are facing.

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